Some of the biggest telecommunications stocks just posted their steepest quarterly declines in two decades amid pressures both new and old on the cable and wireless industries.
Shares of wireless companies AT&T Inc. T,
Comcast Corp. CMCSA,
Cable giants Comcast and Charter both benefited earlier in the pandemic as connectivity became critical to people working and studying from home, but the companies have struggled to find growth in their internet businesses more recently. Comcast saw flat broadband subscriber counts in its second quarter, results for which it reported in late July. Charter posted a loss of broadband subscribers, but executives said they would have seen some growth if not for disconnects related to changes in government programming.
Executives at both companies gave several reasons for their growth challenges, including that people are moving at lower rates than they used to. When people move, they may be more inclined to switch cable providers, whether by choice or necessity.
“Housing occupancy and new construction is lower because of supply-chain issues, so that, I think, will get fixed in time, but it’s an issue affecting growth at the moment,” Charter Chief Executive Tom Rutledge said on the company’s most recent earnings call.
Charter announced last week that Rutledge plans to step down as CEO and will be replaced by current Chief Operating Officer Chris Winfrey, who takes over Dec. 1. The retirement came “a few years sooner than many expected,” according to Oppenheimer analyst Timothy Horan, who thought that “the early departure was helped by increasing competition and the need for CHTR to improve its strategic position.”
The wireless companies have also had recent struggles.
Verizon posted overall gains in postpaid phone subscribers for its last-reported quarter but lost 215,000 such subscribers when looking at just the consumer business. Analysts see the company as being in a difficult position, as Verizon has been slightly less promotional than its peers in an acknowledgment of the margin impacts of excessive discounts. At the same time, however, analysts don’t think Verizon has the network advantage it once did, mainly due to the ascent of T-Mobile US Inc. TMUS,
AT&T has been sporting better subscriber growth than Verizon, although the company’s CEO denies that promotions are driving all of that performance. Nonetheless, shares of AT&T stumbled after the company’s latest earnings report amid concerns about a lower free-cash-flow outlook and commentary from executives indicating that customers had become slightly slower with their bill payments.
While the selloffs in wireless and cable names have their own industry-specific reasons, Verizon and AT&T can likely blame Charter and Comcast for some of their woes — and vice versa. Charter and Comcast have both been making strides in growing their own bases of wireless-phone subscribers through arrangements that make use of Verizon’s network.
The early wireless success for Charter and Comcast means more competition for wireless subscribers industrywide. The two companies have shown “spectacular growth in wireless,” MoffettNathanson analyst Craig Moffett wrote following Charter’s report in July.
AT&T, Verizon and T-Mobile have been plodding more deeply into home internet with efforts in fiber and fixed-wireless access. Executives at Charter and Comcast both acknowledged some new competition from the wireless companies, though they didn’t see that as the major reason behind their latest weak subscriber showings.
“Cable sentiment is in the basement,” Wells Fargo analyst Steven Cahall wrote in a mid-August note to clients. “It feels like the longtime supporters are scared off by the broadband net-add picture and persistent acceleration in FWA [fixed-wireless access] net adds. While we think encroaching fiber is still the bigger risk, it makes a 2022 recovery look tough and 2023 even more crowded with competitive dynamics.”
One company that didn’t feel the same stock-market pain in the third quarter was T-Mobile, which saw its shares fall by only 0.3%. While pressures at Verizon and AT&T “can be attributed to the difficult reality that neither one can communicate a compelling value proposition to compete with T-Mobile,” Moffett wrote in July, he thinks that T-Mobile “is still taking share, and at an accelerating rate” — as well as with “increasingly affluent demos.”